Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Despair of budget repair

Robert Carling

10 June 2016 | Ideas@TheCentre

piggy bank broken 3Having been out of touch with the minutia of Australian fiscal policy throughout May, this commentator’s fresh set of eyes has focused on the federal budget only in the past week.

While at least it has not made the overall deficit and debt outlook worse — and we should perhaps be thankful for such small mercies in an election-eve budget — it contains much that disappoints.

The biggest disappointment is the failure to tackle budget repair more vigorously and through spending curbs. The projections show a roughly balanced budget by 2019-20, but this is a budget for 2016-17 — not 2019-20 — and in 2016-17 the deficit remains large.

Moreover, even the projected balance in four years’ time relies heavily on personal income tax bracket creep (which the budget does a little, but very little, to address) rather than spending curbs. Expenditure savings measures in this budget are timid.

Following the fierce response to the 2014 budget, Abbott/Hockey in the 2015 budget waved the white flag to the forces arrayed against further attempts at budget repair.

Turnbull/Morrison are continuing to wave the white flag in 2016. While boldness may have been an act of electoral suicide in the current context, at some stage a federal government will be forced to grasp the nettle of spending restraint.

What has attracted most attention is not the deficit and debt outlook but the proposed changes to company tax and superannuation.

A sizeable cut in the company tax rate is warranted and the budget initiative in that direction is welcome. However the ten year phase-in and back-loading of the cuts are problematic.

While there is nothing wrong in principle with a legislated multi-year path for tax reform, ten years strains credulity, particularly as the opposition promises to abandon the path at the first opportunity. No company contemplating an investment now can count on the phase-in being completed.

The surprisingly far-reaching changes to taxation of superannuation are a curate’s egg. Some of the changes are sensible, but others will hit either accumulated savings or the incentive to save in the future – this from the party that supposedly champions thrift and self-reliance. The new caps are mostly unwarranted and should at least be watered down.

The alternative government should draw no comfort from the above critique. Point-by-point, their proposals are worse.

‘Don’t Give a Gonski’: Can Social Issues Assist with Economic Reform?

Jeremy Sammut

10 June 2016 | Ideas@TheCentre

GonskiMany politically-engaged people are wont to say “I hate the culture war stuff, but even I reckon that Safe Schools is crazy!

This is to say that these people see themselves as economically dry, but as socially progressive — and tolerant of LGTBI issues including gay marriage.

Most social ‘Wets’ — from the Prime Minister and the Federal Minister for Education down — have not come out strongly and publically opposed Safe Schools, even though the program’s dubious anti-bullying rationale and highly-ideological bendy gender agenda have been exposed.

Wets are afraid of being branded (in the infamous words of the Leader of the Opposition) — as a bigot, and being associated with the so-called ‘Christian’ or ‘Hard Right’ social conservatives that have spoken out against Safe Schools.

The fact is that the Left is fighting the culture war hard. The strategy is to wedge the Right by employing the politics of social embarrassment to achieve one tactical victory at a time; in this case further entrenching political control over as important a cultural institution as education.

Yet public education — along with the public health and welfare systems — is one of the chief drivers of debt and deficit, and a major battleground in the struggle to achieve smaller government.

This is particularly the case when the unaffordable Gonski school funding promises are an election issue.

The difficulty for the centre-right is always to neutralise the motherhood notion that higher spending will lead to better outcomes, even though the confidence placed in education bureaucracies to produce better results is unwarranted.

A good slogan — dare I say it — that might serve to make this point may be to say: “No! I don’t give a Gonski… not when education departments throw away taxpayer’s money on Safe Schools.”

To combine social issues with an economic reform agenda would hardly be unprecedented.

We should remember John Howard’s defence of his government’s choice-based school funding policy. Howard argued that many Australian families preferred non-government to government schools because of the values imparted by the respective systems.

This is claim is even easier to make today when public educationists have subverted the Jesuit credo. As political commentator Terry Barnes has put it, the bendy-genderist want us to give them the seven-year old boy, so they can show us the woman.

Australia’s real tax revenue problem

Michael Potter

10 June 2016 | Ideas@TheCentre

tax burden 2Australia has a problem with its tax revenue: it is too high. Yet we are seeing taxes go in exactly the wrong direction, with a tax hike of 12.7% per person forecast over the next five years in real terms (after inflation).

Historical comparisons support the case against these tax increases. The federal government’s tax burden is slightly above the historical average, but is forecast to grow sharply, and be $29.6 billion above the average in five years’ time — or $1,228 per person. The tax burden of all Australian governments combined is much further above average and set to grow as well.

International comparisons also argue against tax increases. Australia’s total tax burden is above the developed world average, based on IMF and World Bank data. Australia is even further above the average for the whole world. In addition, the revenue from personal and company tax is substantially above developed world averages.

But the most important argument against the high and growing tax burden is the costs this imposes. Based on Treasury forecasts, the increase in personal tax alone will cut GDP by $376 per person, a figure the Treasury says is large. The hike in the overall tax burden would have greater costs.

Conversely, the arguments in favour of a high and growing tax burden are without foundation:

  • We don’t need tax increases to close the budget deficit. In previous years when there was a small deficit or surplus, tax was around current levels, while spending levels were (much) lower. So historical comparisons say that the burden of budget repair should come entirely from spending cuts.
  • The end of the mining boom does not argue for tax increases, because the boom now has a negligible effect on the budget. This also means revenue shortfalls (compared to forecasts) do not argue for higher taxes.
  • Taxes should not be higher due to tax avoidance: such an approach would put the greatest burden on those that don’t avoid tax, leave the most successful tax avoiders unaffected, and encourage more tax avoidance which is supposedly the problem.

All these arguments are considered further in my CIS research report The case against tax increases in Australia: The growing burden which was released this week.